Global stocks are rallying as traders see Fed comments as 'central banks to the rescue'

futures traderA trader signals a trade in the S&P futures pit at the CME group in ChicagoJohn Gress/Reuters

  • Asian and European equities and US futures jumped on Wednesday after the Federal Reserve hinted it might cut interest rates later this year.
  • Fed Chairman Jerome Powell pledged to "act as appropriate" to maintain US economic growth in the face of a global trade war.
  • The rally is "clear case of central banks to the rescue," said Jasper Lawler, head of research at London Capital Group.
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Global stocks and US futures jumped on Wednesday, tracking a boom in US equities on Tuesday, after the US Federal Reserve hinted it might cut interest rates later this year.

Fed Chairman Jerome Powell pledged to "act as appropriate" to maintain US economic growth in the face of a global trade war. His comments sent the Dow Jones Industrial Average, S&P 500, and Nasdaq up more than 2% - their biggest one-day gains in five months.

The stock-market rally is a "clear case of central banks to the rescue," said Jasper Lawler, head of research at London Capital Group. "Powell gave the markets what they wanted to hear, and the result was a spectacular rally, as traders increased their bets of a rate cut happening before the year end."

However, Lawler warned the recovery might not last, given the rising trade tensions between the US and China, Mexico, India and others.

"Today the markets are happy to focus on Fed support, but with the US Commerce Department promising retaliation in the event of China's rare earth's threat, this trade war looks set to get worse before it gets better."

Such a sharp rally on the mere hint of a rate cut has worried some analysts.

"Markets are in a state of flux right now, so we are seeing broader swings without a directional shift," said Neil Wilson, chief market analyst for Markets.com. "I'd be cautious about any rally like this when it seems to be [based] on nothing but fumes."

"Those betting the farm on the Fed cutting rates this year may be left with a small harvest," he added.

Here's the market roundup as of 9.15 a.m. (4.15 a.m. ET):
  • European equities climbed in morning trading with Germany's DAX up 0.4% Britain's FTSE 100 up 0.3%, and the Euro Stoxx 50 up 0.4%.
  • Asian markets were mixed with the Shanghai Composite and SZSE Component almost flat, Hong Kong's Hang Seng up 0.4%, and Japan's Nikkei up 1.8%.
  • US stocks are to open higher. Futures underlying the Dow Jones Industrial Average and S&P 500 were up 0.3%, while Nasdaq futures were up 0.4%.
  • Oil fell in early trading with Brent crude down 0.6% at $61.60 and West Texas Intermediate crude down 0.8% at $53.
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